S&L; Industry Logs Third Straight Year of Profits in ’93 : Thrifts: While earnings declined slightly to $5 billion, the return on assets remained the same.

Profits of savings and loans slipped slightly last year--to $5 billion from $5.1 billion the year before--but it was a far cry from the industry’s bad old days of multibillion-dollar losses.

It was the third consecutive year of profits for the industry after four years--1987 through 1990--that saw it hemorrhage more than $30 billion.

The 1,669 institutions that have managed to survive the S&L; crisis earned profits of $1.19 billion in the final three months of last year, an improvement from the $1.05 billion earned in the fourth quarter of 1992, the Office of Thrift Supervision said Thursday.

Although full-year earnings declined from 1992, they were roughly equivalent because the latest year’s profits came from a smaller industry.

The return on assets--a standard measure of profitability--was 0.65% for both years, about half the return on assets experienced by commercial banks for the year.

Robert Davis, chief economist of the Savings & Community Bankers of America, said the return for S&Ls; was lower than for banks because S&Ls; were left with more leftover problem loans from the 1980s.

He said the stability in S&L; returns masks a dramatic improvement in the industry’s financial strength and ability to weather future problems.

At the end of 1993, problem assets such as delinquent loans and repossessed real estate totaled $17 billion, down from $25 billion the year before.

And the industry continued to build its capital, which acts as a cushion against losses. It was 7.1% of assets at the end of 1993, up from 6.4% a year earlier.

“Even though their earnings are the same, their balance sheets are improving,” Davis said.

*

Ninety-nine percent of S&Ls; are at least adequately capitalized, the thrift office said. It said 101 institutions are still considered to be problems, down from 203 a year earlier.

Davis predicted that the industry’s earnings will continue to improve as it closes the books on more problem loans.

Taking an opposite view, economist Warren Heller of Veribanc Inc. in Wakefield, Mass., said earnings will probably erode.

Much of the profitability of the last two years has been driven by the unusually wide gap between short-term interest rates on deposits and long-term interest rates on loans.

That gap has already begun to narrow and will continue to close this year, although not dramatically, Heller said.

“I think institutions can weather mildly rising rates . . . but I just don’t see any mechanism by which they’re going to be able to earn at the same rate as they have the last two years,” he said.

Thursday’s report did not include the 63 failed S&Ls; that are under the control of the Resolution Trust Corp., the government’s S&L; cleanup agency.